Good Jobs, Bad Jobs and Redistribution

29 Pages Posted: 8 Oct 2003

See all articles by Kjell Erik Lommerud

Kjell Erik Lommerud

University of Bergen - Department of Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Bjorn Sandvik

University of Bergen - Department of Economics

Odd Rune Straume

University of Minho - Economic Policies Research Unit (NIPE); CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 3 versions of this paper

Date Written: August 2003

Abstract

We analyse the question of optimal taxation in a dual economy, when the government is concerned about the distribution of labour income. Income inequality is caused by the presence of sunk capital investments, which creates a "good jobs" sector due to the capture of quasi-rents by trade unions. We find that whether the government should subsidise or tax investments is crucially dependent on union bargaining strength. If unions are weak, the optimal tax policy implies a combination of investment taxes and progressive income taxation. On the other hand, if unions are strong, we find that the best option for the government is to use investment subsidies in combination with either progressive or proportional taxation, the latter being the optimal policy if the government is not too concerned about inequality and if the cost of income taxation is sufficiently high.

Keywords: rent sharing, segmented labour markets, optimal taxation, redistribution

JEL Classification: H2, J42, J51

Suggested Citation

Lommerud, Kjell Erik and Sandvik, Bjorn and Straume, Odd Rune, Good Jobs, Bad Jobs and Redistribution (August 2003). Available at SSRN: https://ssrn.com/abstract=443900

Kjell Erik Lommerud

University of Bergen - Department of Economics ( email )

Fosswinckelsgt. 6
N-5007 Bergen, 5007
Norway
+47 5 558 9209 (Phone)
+47 5 558 9210 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Bjorn Sandvik

University of Bergen - Department of Economics ( email )

Fosswinckelsgt. 6
N-5007 Bergen, 5007
Norway

Odd Rune Straume (Contact Author)

University of Minho - Economic Policies Research Unit (NIPE) ( email )

Campus de Gualtar
Braga, 4710-057
Portugal

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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